The European Union has approved a law that will bring huge fines to bear on companies found guilty of manipulation the Libor, the London Interbank Offered Rate. The new law was approved by the political body’s parliament earlier today and will come into force in the next two years.
The new law makes manipulation of the benchmark interest rates in the European Union illegal and makes the crime punishable by a fine of up to 15 percent of turnover. Individuals charged with manipulating the base interest rates can be fined by up to 5 million euro, and they will be banned from the industry.
Libor punishment
The punishments for manipulation of benchmark interest rates came as part of a package of financial regulatory laws. The new set of laws covers electronic trading, selling of shares by insiders, and commodity trading. The new laws show the increased role the European Union sees for itself in regulating financial markets in member states.
The Libor interest rate is not the only benchmark that has come under scrutiny in Europe in recent times. ISDAfix, which acts as a benchmark rate for swaps, is currently under the eye of the British Financial Watchdog, the FCA. That inquiry has not yet led to a true investigation, nor is there any indication of when an investigation might take place. Records relating to the benchmark have been subpoenaed however.
A second part of the financial law, which will make financial crimes punishable by jail sentences, was not included in today’s legislation, but it is expected to be passed in the coming weeks. The increased punishments for Libor fixing will not effect those already fined for participation in the last Libor scandal. Those firms include UBS, Barclays, and Royal Bank of Scotland.
Libor scandal
In the Summer of 2012 several news agencies, including the BBC and Reuters came across information indicating that the Libor benchmark was being manipulated by traders for personal or corporate gain. The outcry on the scandal extended to other benchmark rates in Europe, and resulted in a wide-reaching probe.
In response to the scandal, it was decided that the structure used to set the Libor should be moved from London to Paris. A series of tighter financial regulation laws are due to come online in order to prevent the actions occurring again, and regulate other financial markets.
